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Shimao re-opens G3 bond market for Chinese property sector
The offering was executed swiftly and generated an order book of USD3.75 billion from over 240 investors – illustrating the strength of investor demand for a quality credit
Chito Santiago 3 Aug 2010

 

Shimao Property Holdings has re-opened the G3 bond market for the Chinese property sector with a well-supported deal that raised USD500 million.
 
The Reg S seven-year non-call four deal was priced at par bearing an interest rate of 9.65% per annum or at the tight end of the price guidance.
 
The deal was whispered in a high 9% area, from which the arrangers – Morgan Stanley, HSBC and Standard Chartered Bank – announced a price guidance of 9.75% area (+/- 10bp). “We stated that the notes would price within that range, giving investors comfort with regards to the final outcome,” says Aaron Russell-Davison, head of Asian debt syndicate at Standard Chartered.
 
He adds: “We are very pleased to deliver a transaction that allowed Shimao to achieve their pricing and size aspirations. The secondary market performance indicates a well-placed deal, with the bonds currently quoted at 100.75 bid, or 9.50%. Shimao took a flexible and pragmatic approach to the entire issuance process. They seized good market conditions, and also allowed for a reasonable premium relative to their 2016 bonds.”
 
Shimao is the first Chinese property company to tap the global bond market since May this year when Renhe Commercial Holdings raised USD300 million. “What this (Shimao) deal demonstrates is that good credit, correctly priced, can be swiftly executed,” Russell-Davison points out.
 
Investors had been too bearish on the Chinese property market as a result of three factors, according to Russell-Davison. One was the European banking situation and the associated negative headlines. The second was the oversupply in the sector, with five high yield property deals priced in quick succession at the end of April. The third factor was the regulatory measures and statements issued by the Chinese authorities at that time.
 
“The general market conditions have improved since then and many of the concerns surrounding these three factors have subsequently diminished,” notes Russell-Davison.
 
The offering was executed swiftly and it generated an order book of USD3.75 billion from over 240 investors – illustrating the strength of the investor demand for a quality credit. “We expected a well-subscribed deal as there had been no supply from this sector for quite sometime,” says Russell-Davison. “Despite it being a Reg S deal, we did see solid interest from offshore US investors.”
 
In terms of comparables, Shimao’s outstanding 2016 bonds were trading at about 9.05% at the time of pricing. “The curve between 2016 and 2017 top-tier Chinese property bonds was about 30bp,” Russell-Davison explains. “That provided a yield of 9.35% to which was added a new issue premium. Shimao was aware that investors required a new issue premium, as the sector was effectively being re-opened after an extensive hiatus.”
 
In terms of geographic distribution, 66% of the bonds were distributed in Asia, 27% in Europe and the rest in offshore US accounts. The biggest buyers were fund and asset managers with 56%, followed by banks with 37%.
 
Proceeds from the offering will be used to repay existing debt, finance existing and new property development projects (including land premium and construction costs) and for general corporate purposes to enhance the company’s liquidity position.
 
Shimao is a large-scale developer and specializes in developing mid to high-end residential, retail and office properties for sale, as well as hotel, retail and office properties for long-term investment holding purposes.
 
 

 

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